GF in 2014

Strategy and targets //

The implementation of the Strategy 2015, launched in 2011, is well on
track. In 2014, GF reached a remarkable milestone: for the first time
in history, GF Piping Systems became the largest division; its sales
reached the 39% mark, whilst GF Automotive came to 37%. The change
towards a better balanced geographical footprint also proceeded
according to plan. The dependence on Europe has continued to decline.
Europe’s share of the Corporation’s total sales fell below 60%,
whereas Asia (21%) and the Americas (14%) kept their shares.

The divestment in Herzogenburg (Austria) allows GF Automotive to
fully focus on its core activities. The acquisition of the German tool
making company Meco Eckel clearly strengthened the leading die-casting
position of GF Automotive. With the building of a new molding line in
Singen (Germany), GF Automotive will further enhance its
competitiveness in Europe. After the expansion of the two Chinese
foundries in Kunshan (finished end 2014) and Suzhou (to be finished
end 2015), more than 20% of the turnover will be realized in China.

GF Machining Solutions acquired Liechti Engineering AG, Langnau
(Switzerland), a company whose competences and product ranges are
highly complementary. With its milling machines, Liechti plays a
leading role in the aircraft sector, one of the less cyclical and more
profitable market segments. Together with the segments medical and
ICT (information & communication technology) GF
Machining Solutions is now well focused.

Currency effects //

Per end 2014, currency fluctuations had a negative efect of CHF 57
million on sales. Mainly, this was due to the trend of the Euro (–CHF
24 million). A negative impact had also the US Dollar, the Turkish
Lira, and other currencies.

Workforce //

The headcount at year-end 2014 came to 14 140 (2013: 14 066),
equalling a small increase of 0.5%. The acquisition of the two
companies Liechti and Meco Eckel caused an increase of around 250
employees. This was compensated by the divestment of the non-core
gravity-die-casting business in Herzogenburg in January 2014. The
second year in a row, Asia is the market with the highest number of
employees (25%), followed by Germany (24%) and Switzerland (19%).

Service

Financial report 2014

Divisions

GF Piping Systems

Results //

The division realized sales of CHF 1 476 million. This works out to
an increase of 5% or 3% on a like-to-like base, where the currency
effect caused a sales decrease of CHF 25 million. Nevertheless, with
this figure GF Piping Systems became the largest division of GF. In
2014, the Utility business was confirmed the largest with a share of
38% of sales. Operating profit slightly increased to CHF 142 million
(2013: CHF 141 million), which is equivalent to an ROS of 9.6%. ROIC
also went down, from 18.7% to 17.1% in 2014.

Markets //

Noticeable events in 2014 were an unusually warm winter in Europe and
North China, and on the other hand a cold winter in North America,
which lasted long into spring. The building technology market in
countries like Switzerland and Germany remained stable. The slow-down
in China’s economy hit the business units Building Technology and
Utility. Sales in Europe were stronger in the first half of the year
and could show an organic growth of about 3% at year’s end. The marine
sector as well as the gas sector in the USA showed both a strong
demand whereas microelectronics suffered from lower investment in Asia
and the USA. Hakan Plastik in Turkey, acquired in 2013, showed strong
sales growth during the full year and a much better profitability
in the last quarter of the year.

The implementation of the Strategy 2015 is well on track. For the first time in history, GF Piping Systems became the largest division.

Outlook //

The positive development of Hakan Plastik is expected to continue.
GF Piping Systems will launch several innovative products to support
the sales growth in the three business areas Industry, Utility and
Building Technology, with a focus on hygiene, automation and fittings
for water applications. In Europe, the situation is expected to be
volatile but the chances to grow by focusing on specific market
segments are intact. The North and South American markets are foreseen
to develop positively in both industry and utility sectors, whereas in
China a slow recovery of the markets for building technology and
industrial products is expected. The appreciation of the Swiss Franc
will have an impact on the business of GF Piping Systems, but the
exact extent is currently hard to quantify. Measures to reduce the
Euro exposure and efficiency measures in Switzerland have been
taken.

GF Automotive

Results //

Due to a further divestment of non-core activities in Herzogenburg
(Austria) and decreasing raw material prices, which have been passed
to customers, sales at GF Automotive fell to CHF 1 415 million. The
business with passenger cars slightly grew and generated almost two-
thirds of sales. Operating profit rose from CHF 70 million to CHF 93
million, a 33% gain leading to an ROS of 6.6% (2013: 4.7%). ROIC came
to 21.8%, clearly above the 16.1% in 2013. With this result, GF
Automotive has already reached and, in case of the ROIC, outperformed
the 2015 objectives (ROS 5%–7%, ROIC 15%–18%). The newly acquired Meco
Eckel contributed to these positive figures in a substantial
manner.

Markets //

Adjusted for currency and metal price effects, car sales of the
division would have met the market development (+3.5%). The car
segment remained the biggest part of the product portfolio with a 66%
share of sales. After a promising start, the truck business was
stagnant worldwide and decreased significantly, also in the most
important market Europe. On an adjusted level, GF Automotive was able
to beat the market development. The truck business came to 29% of
sales. The division was once again able to participate above average
in the high growth rate (+10%) of China’s booming car market. By
extending the capacity of its two foundries in China by 50%, the
division has created the conditions to benefit from this boom also in
future. Germany keeps its leading role as market number one for the
division.

Outlook //

GF Automotive is positioned as a lightweight specialist for iron
casting and light metal pressure-die-casting. Worldwide experts
forecast positive growth rates in all automotive business fields for
2015. The capacity extension of the two foundries in China by 50%
creates the necessary conditions to benefit from the booming Chinese
car market in the next years. With a new molding line in Singen
(Germany), competitiveness in Europe will be further strengthened. The
appreciation of the Swiss Franc will only have a very small effect as
the cost volume is relatively low in Switzerland.

GF Machining Solutions

Results //

GF Machining Solutions’ sales exceeded CHF 900 million and rose by
4% to CHF 905 million based on the acquisition of Liechti. Operating
profit improved from CHF 51 million to CHF 53 million, which results
in a stable ROS of 5.9%. However, ROIC jumped from 15.2% to 16.9%.

Markets //

GF Machining Solutions is the only supplier of electric discharge
machines (EDM), milling, laser texturing, automation and tooling
technologies. This gives the division a unique position as solution
provider which helps to maintain the competitive advantage especially
against Japanese companies, which have benefited from the strong
depreciation of the Japanese Yen.The sales growth to CHF 905 million
came mainly from the European market with a considerable contribution
of the acquired Liechti. EDM was again the strongest segment with
sales of CHF 319 million (+8%). Milling sales grew also more than 6%
to CHF 260 million.

Outlook //

The division started with a higher backlog of 45% into 2015. Many
innovative projects are well under way. Highlights will be presented
at the next EMO in Milan (Italy), the leading trade fair for the
machine tool business which will take place in October. The
appreciation of the Swiss Franc will have an impact on the business of
GF Machining Solutions. Measures to reduce the Euro exposure and
efficiency measures have been taken.

Service

Our success stories

Market and Customers

Global market presence //

The Asian markets’ share of total sales kept stable in 2014 and still
accounts for 21%. With the further expansion in China, Asia will
continue to grow over the next years. Asia also kept its position as
the market with the highest number of GF employees (25%). Due to a
divestment in GF’s portfolio, Germany’s share of sales decreased to
29%, a further reduction of the dependency of the largest single
market. Regarding workforce, 24% of employees work in German
facilities of GF. The companies in Europe accounted for 59% of sales
(2013: 61%).

Awards //

In June, GF Piping Systems won the “Supply Chain Management Award” at
the international Supply Chain Convention in Frankfurt (Germany) for
its integrated end to-end supply chain solution, which enabled the
division to gain strategic advantages. The solution has resulted in
lowering logistics costs, optimizing processes, and further improving
customer service.

GF Automotive won the Design Award of the
International Magnesium Association second year in a row in the
category “Casting Design”. The winner was the oil conduit module
produced in magnesium high-pressure die-casting in Altenmarkt
(Austria) for the Porsche Panamera. The price was awarded on 3
June, during the Annual International Magnesium Conference in
Munich (Germany). With the holistic approach of design, process,
and material, it is about 1 kg lighter than the model in aluminum.

GF Machining Solution won the Micron d’Or award
at the Micronora in Besançon (France) with its Integrated
Vision Unit (IVU Advance) in September. It provides precision
up to the micron on the EDM wire-cut machines and won gold as
microtechnological innovation. In addition, the division’s
Machine and Spindle Protection System was awarded the second
price of the Prodex Award at the Prodex trade fair in Basel
(Switzerland). Working in all directions, this system protects the
milling-machine and its spindle during the setup process.

Trade fairs //

Trade fairs are crucial to intensify and broaden the dialogue with
existing and potential customers. In 2014, the three divisions took
part in 115 trade fairs and exhibitions worldwide.

GF Piping Systems participated in almost 70 trade
fairs and exhibitions around the globe. The first highlight was
the Mostra Convegno Expocomfort in Milan (Italy) in March, one of
the biggest trade fairs for enhanced living comfort. In May, the
IFAT in Munich (Germany), the leading trade fair for water, sewage,
waste, and raw materials management, was a success in showing system
solutions for the complete water cycle.

In January, GF Automotive presented its lightweight
competence at the Euroguss in Nuremberg (Germany), the worldwide
largest fair for lightweight castings. The key topic
“lightweighting” was showcased with parts that add up to 31 kg of
weight savings per vehicle.

GF Machining Solutions presented its innovative
solutions at 29 international trade fairs. One of the highlights
was the division’s innovative Machine and Spindle Protection
System which was presented at leading industrial fairs worldwide,
such as the IMTS in Chicago (USA) and the AMB in Stuttgart
(Germany).

Service

Related topic

Products and Processes

Regulation and measurement //

GF Piping Systems added a new full plastic Pressure Regulating Valve
to its wide range of products. Its compact design ensures that the
valve fits even in confined spaces. The division also expanded its
product portfolio for measurement and control systems with
easy-to-install level sensors.

Big dimensions //

Its range of solutions for big dimensions was enhanced once more by
GF Piping Systems. In Schaffhausen started the production of the ELGEF
Plus electrofusion couplers for water and gas applications in the
dimensions from 355 to 1 200 mm diameter. Even under difficult site
conditions the electrofusion couplers of GF Piping Systems convince
with long lasting and safe connections.

Right materials //

GF Automotive’s special ductile iron material SiMo1000 has entered
also the truck market. Parts produced in this material allow to be
applied at high temperature in engine applications such as exhaust
manifolds and turbo charger housings. SiMo1000 parts are being used
for several years in light vehicles and replace products produced in a
more expensive material.

High performance //

Two of the highlights GF Machining Solutions launched are the new
generation of high-end wire-cut Electric Discharge Machines, and High
Speed Milling Machines which satisfy most stringing requirements.
Finally, the System 3R TRANSFORMER, a scalable automation system,
answers the growing need for scalability and customization.

Service

Risk Management

Risk control //

GF controls risks by means of risk management. Risk management
includes the systematic identification, evaluation, and the reporting
of strategic, operational, financial, market, management, and
resources and sustainability risks as well as the determination of
adequate measures in order to mitigate the risks identified at the
level of the Corporation, the divisions and the Corporate Companies.
The criteria applied in assessing risks include their impact and the
probability of their occurrence.

Reporting //

The strategic risks are assessed primarily by the Board of
Directors, whereas all other risks are handled by the management of
each Corporate Company, the management of each division and finally by
the CEO and the Executive Committee. To coordinate all activities in
the field of risk management and to improve the quality of risk
reporting, a Risk Council consisting of representatives of the
divisions and the Corporate Staff under the leadership of the Chief
Risk Officer has been established. The Risk Council coordinates all
activities in the area of risk management and secures the quality of
the risk management data.

Risk analysis and standards //

In addition to the systematic risk assessment, GF also thoroughly
emphasizes business continuity management in order to secure the
reliability of deliveries to customers. The standard of risk
management at virtually all production sites is either HPR (Highly
Protected Risk) or HMP (Highly Managed Prevention) and is regularly
audited by external specialists. In the year under review, 17
production sites (previous year: 16) out of a total of 49 (previous
year: 48) underwent such audits. The HPR standard applied to 86%
(previous year: 85%) of the Corporation’s insured assets at the end of
the year under review, the HMP standard to 9% (previous year:
10%).

Service

Investments

Property, plant and equipment //

In 2014, GF invested CHF 152 million in property, plant and
equipment. It is the highest amount since 2008, based on the building
of a new state-of-the-art production line in Singen (Germany), which
will be completed at the end of 2015. With CHF 79 million (52%), GF
Automotive accounted for the bulk of this figure. GF Piping Systems
accounted for CHF 49 million, almost 20% going into a new production
machine for fittings with big dimensions at the production plant
Schaffhausen. About 74% of the investments were made in European
countries, thereof 16% in Switzerland, and 15% in Asia.